CPS is a billing mechanism that pays a percentage of the sale for every completed sales transaction. Here, money is paid for every new sale generated. It measures the actual amount of business produced by the activity. This is the latest trend in the field of marketing.

Conventional marketing is not risky, but expensive. It includes a heavy expenditure in advertisements, TV commercials and direct mail approaches. The results of these campaigns are not guaranteed; hence it becomes difficult for management to confirm the overall expense of marketing.

The cost per sale strategy provides a low-risk, high profit method of obtaining new customers and reaching an unlimited amount of prospects. This is a stereotype of conventional marketing. This innovative approach to boost new business has companies re-allocating much of their marketing budgets to e-marketing campaigns. This method increases brand awareness and knowledge while sales numbers also continue to rise. Companies do not allocate a part of their budget to generate leads. Instead the sales pay by itself. 80% of affiliate marketing programs today use revenue sharing or cost per sale (CPS) as compensation method.

Of the affiliate marketing types, cost per sale is the least used method. Cost per sale is a great way to cap the earnings of a business for any particular sale. Some companies might not like the CPS payout type as much as a percentage of sale, but this method is more beneficial. The best reason for using a CPS method is that it limits the amount of company’s expense if it is selling a high cost item.

CPS can also be interpreted as the cost incurred in a sales transaction. This can be calculated as the total cost incurred in the campaign i.e. the campaign cost divided by the number of sales transacted. This figure will give an idea of the cost incurred by the company for a successful sales transaction. For example, a salesman makes 10 calls and closes four sales. Total call cost is $200. Here, the CPS will be calculated as follows:

Total call cost + $200,
Total sales = 4
Cost Per Sale = 200/4 = $50 (CPS)

Based on this information, the company can formulate its sales strategies. If the number of sales is lesser than the minimum requirement for running the campaign, or if the CPS is more than the expected amount, the campaign will be at loss.

Every company would like to increase sales. Nothing could be more obvious. By using CPS, companies are making better utilization of their money.